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AAII Sentiment Survey: Optimism Declines, But Stays High

Optimism among individual investors about the short-term direction of stock prices pulled back, but remains at an unusually high level, according to the latest AAII Sentiment Survey. At the same time, pessimism and neutral sentiment rebounded.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 11.1 percentage points to 48.7%. The large drop follows what had been the highest reading in more than seven years. The historical average is 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.6 percentage points to 26.3%. Neutral sentiment is below its historical average of 31.0% for a sixth consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 9.5 percentage points to 25.1%. The large rise follows what had been the lowest reading in more than three years. The historical average is 30.5%.

In looking at this week’s results, it’s important to keep the context of last week’s readings in mind. Last week’s bullish sentiment reading of 59.8% was only matched or exceeded on 46 weeks during the more than 30-year history of our survey. At the same time, bearish sentiment was at an unusually low level last week.

This week, pessimism is back within its typical historical range. Optimism, however, remains unusually high, as noted above. Bullish sentiment is, however, just over the border between what we consider to be a typical and an unusually high reading (48.7%).

Some individual investors are encouraged by the record highs for the major indexes, the tax cuts and/or the Federal Reserve’s decision to continue raising interest rates at a gradual pace. Other individual investors are concerned about the possibility of a pullback or a more severe drop occurring. Even many investors who are optimistic about the overall direction of stocks expect a return of volatility this year. Also affecting investor sentiment are earnings growth, economic growth, valuations and the lack of volatility. Washington politics remain at the forefront of many individual investors’ minds.

This week’s AAII Sentiment Survey results:

  • Bullish: 48.7%, down 11.1 percentage points
  • Neutral: 26.3%, up 1.6 percentage points
  • Bearish: 25.1%, up 9.5 percentage points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: www.aaii.com/sentimentsurvey.

Want to weigh in? Take the survey yourself and see results online at www.aaii.com/sentimentsurvey.

If you want to become an effective manager of your own assets and achieve your financial goals, consider a risk-free 30-day Trial AAII Membership

 

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